Insights Into the New Reality
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The 6th EFG Hermes London MENA & Frontier Conference INSIGHTS INTO THE NEW REALITY Emirates Stadium, London, UK 5 - 8 September, 2016 The 6th EFG Hermes London MENA & Frontier Conference In addition to our customary focus on the Middle East and North Africa, this year's EFG Hermes London Conference includes for the first time listed companies in frontier markets outside of MENA. A few short months ago, Western markets were in favor as developing economies were roiled by low oil and commodity prices, rising global volatility, China's economic slowdown, the specter of an emerging market debt crisis, and the prospect of a hike in U.S. interest rates. Today, Argentina has returned to the global investment map, Mideast markets are taking decisive steps to transition to a post-oil future, and net outflows from emerging market funds in late 2015 and early 2016 have reversed as investors faced with the prospect of negative interest rates from Europe to Japan are seeking equity and fixed-income opportunities in emerging and select frontier markets. Exploring Opportunities in MENA & Beyond Reform remains a critical driver of regional market performance at a time when oil prices and capital flows into emerging markets remain uncertain. Growth is slowing in nearly all economies thanks to the commodity price shock, but reactions differ between markets. Financial sector changes – including the potential listing of Saudi Aramco – are the cornerstones of Saudi Arabia’s transformative Vision 2030, but markets will also be looking for changes to FOLs and market infrastructure in the UAE, Qatar and Kuwait. Broader economic reforms are required outside the GCC, including increasing tax collection in Pakistan and Egypt. Securing financing for fiscal and current account deficits remains critical in the current environment. The IMF may play an increasing role in mainstream EM and FM countries, but GCC markets will focus on attracting private sector financing. Emirates Stadium, London, UK 5 - 8 September, 2016 EGYPT AMER GROUP 4 INTEGRATED DIAGNOSTICS HOLDINGS | IDH 36 Year-end June 2014a 2015a 2016e 2017f 2018f ARABIAN CEMENT COMPANY | EGYPT 6 JUHAYNA 38 Nominal GDP (USD bn) 301.4 330.3 345.0 310.1 330.1 ARAFA HOLDING 8 LECICO 40 Real GDP growth (%) 2.2 4.2 3.7 3.8 4.3 CAIRO POULTRY 10 MADINET NASR HOUSING & DEVELOPMENT 42 CPI inflation, annual average (%) 10.1 11.0 10.2 14.3 12.0 CLEOPATRA HOSPITAL COMPANY | CHC 12 ORASCOM CONSTRUCTION LIMITED 44 Current account balance (USD bn) (2.7) (12.1) (18.2) (14.5) (17.5) COMMERCIAL INTERNATIONAL BANK | CIB 14 ORASCOM DEVELOPMENT HOLDING 46 Current account balance (% of GDP) (0.9) (3.7) (5.3) (4.7) (5.3) DOMTY 16 ORIENTAL WEAVERS 48 Fiscal balance (USD bn) (36.6) (38.0) (42.1) (33.2) (32.8) EDITA 18 PALM HILLS DEVELOPMENTS 50 Fiscal balance (% of GDP) (12.2) (11.5) (12.2) (10.7) (9.9) EFG HERMES 20 PORTO GROUP 52 Population (mn) 86.8 88.8 90.8 92.8 94.8 EGYPTIAN RESORTS COMPANY 22 QALAA HOLDINGS 54 Source: Central Bank of Egypt, Ministry of Finance, and EFG Hermes estimates EK HOLDING 24 SODIC 56 ELSEWEDY ELECTRIC 26 TELECOM EGYPT 58 EZZ STEEL 28 TMG HOLDING 60 GB AUTO 30 GLOBAL TELECOM HOLDING 32 HOUSING AND DEVELOPMENT BANK 34 Share Price Performance Relative to HFI (VWAP) (Rebased) AMER GROUP www.amer-group.com 0.8 Amer (EGP) HFI (VWAP) EGYPT 0.7 0.6 Real Estate & Hospitality BUSINESS DESCIPTION Amer was originally established as a real estate investor, developer, and a hospitality provider that caters for the middle 0.5 and upper-middle income segment in Egypt. The company’s product offering was concentrated in the secondary homes segment and was later extended to the primary homes, with projects in New Cairo and Sixth of October 0.4 QUESTIONS City. Amer also has franchise licences for a number of restaurant names, owning and operating 58 outlets in Egypt. This, together with the company’s hospitality and retail arm bring in c.20% of the company’s top line, on average. In 0.3 October 2015, the group has successfully concluded the spin-off exercise of the majority of its real estate development operations to a newly-established entity, named Porto Group, to concentrate on the real estate investment activity, 1. How is management addressing the rising concerns of affordability, which is mostly felt within the segment Amer is addressing? and the ownership and management of its retail, restaurants, and hotels portfolio. The new entity would allow ................................................................................................................................................................................................................................................................... for higher realisation of value, in management’s view, as it would provide more management flexibility and focus. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 That said, Amer has taken the responsibility to deliver an off-plan backlog worth EGP3.1bn (in June 2016), sell the 2. Should we expect to see cooperation with other real estate companies, other than Porto Group in the future? existing inventory of 1,036 units and conclude the projects that are currently under co-development with Porto Group. Following the delivery of these, Amer will be more dedicated to land sourcing and investment, and to the ................................................................................................................................................................................................................................................................... (EGP) management of the restaurants, malls and hotels portfolio. Valuation Statistics 2014a 2015a 1H16a (TTM) EPS 0.03 0.03 0.04 3. Is the company looking to grow its land bank? What is the strategy here? INVESTMENT THESIS DPS 0.00 0.00 0.01 ................................................................................................................................................................................................................................................................... Under the new setting, post the spin-off of the real estate development related activities to Porto Group, Amer Group BVPS 0.31 0.34 0.30 will provide exposure to a recurring income stream of cash flow, with its focus on the management of restaurants, malls and hotels. We note that these segments have been either loss-making or barely breaking-even over the past 4. What plans does management have to turnaround the company’s hotel, malls and restaurants operations? five years. The company has announced the appointment of two new heads of its hospitality and malls segments in P/E (x) 8.86 11.24 8.13 ................................................................................................................................................................................................................................................................... 4Q15, in order to lead the restructuring process, which we view positively. The group owns and operates c.80,000 Dividend Yield 0.0% 0.0% 3.3% sqm of GLA in the retail space under the Malls division, with additional 222,000 sqm under construction. Under the P/BV (x) 1.0 0.9 1.0 hotels division, Amer owns and manages a total of 860 hotel rooms, which are planned to double in number to 1,229 hotel rooms, before end of 2019. This is in addition to 7,415 seats within its restaurant division. Amer is also entitled FCF Yield 20.0% -14.3% 21.6% to 1% of Porto Group’s contracted sales, as royalty fee, against the use of the Amer-generated Porto brand. Amer EV / EBITDA (x) 3.7 3.8 3.8 Group currently owns a total of 5.5mn sqm, of which 2mn are yet to be developed; looking to expand this further. Key Performance Ratios 2014a 2015a 1H16a (TTM) Land Bank (sqm mn) 5.5 Financial Statements - December Year End (EGP mn) Revenue Growth N/A 4.5% 6.4% Balance Sheet 2014a 2015a 1H16a (TTM) EBITDA Margin 20.6% 19.4% 15.2% Development Properties 2,528 3,061 2,889 EBIT Margin 17.3% 16.0% 13.3% Net Fixed Assets 974 1,249 1,278 Effective Tax Rate 31.7% 28.2% 21.6% Intangibles & Others 1,765 1,970 2,028 ROAE 14.3% 11.4% 12.0% Total Assets 5,267 6,280 6,195 ROAIC 36.8% 15.1% 15.5% Current Liabilities (Including Debt) 3,417 3,996 4,096 DPO 0.0% 0.0% 27.1% Long-Term Liabilities (Including Debt) 538 860 696 Net Debt (Cash) / Equity (x) (0.22) (0.26) (0.19) Total Net Worth 1,291 1,409 1,387 Minority Interest 21 14 16 Net Debt (Cash) / EBITDA (x) (0.93) (1.25) (0.87) Total Equity & Liabilities 5,267 6,280 6,195 Net Debt (284) (368) (258) Company and Stock Data Price (EGP) 0.30 on 21 August 2016 Income Statement Bloomberg / Reuters AMER EY / AMER.CA Revenue 1,767 1,846 1,964 MKT Cap (mn) / Shares (mn) EGP1,368 / 4,560 EBITDA 363 358 298 3M ADVT (mn) USD0.6 EBIT 306 295 261 Float 28% EBT 312 235 256 Foreign Ownership Limit No Limit Net Income 185 154 168 Major Shareholders Cash Flow Statement SOL Global Holding 35% CF from Operations 482 299 573 Amer Wakf 15% CF from Investments (209) (494) (277) Lantess International 10% CF from Finance & Non Operating CF (328) 332 (216) Source: Amer Group, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 4 5 Share Price Performance Relative to HFI (VWAP) (Rebased) ARABIAN CEMENT COMPANY (EGYPT) FAIR VALUE EGP13.00 RATING BUY www.arabiancement.com 19.0 Arabian Cement Egypt (EGP) HFI (VWAP) 17.0 EGYPT 15.0 13.0 Materials INVESTMENT THESIS 11.0 Arabian Cement Company (Egypt) is amongst the top five cement producers in Egypt, with a clinker capacity of 9.0 4.2 mtpa that can produce 5.0 mtpa of cement. The company positions itself as a premium, quality brand with 7.0 c8% market share, supported by: i) a utilisation rate (85% in 2015) above the industry average (77%), ii) a focus QUESTIONS on high-demand Greater Cairo and Delta, and iii) a fleet for delivery service (plans to reach c70% of volume).